Hungarian Prime Minister Viktor Orban arrives for the European Council meeting at the EU headquarters in Brussels on June 27, 2013.

Hungarian Prime Minister Viktor Orban told the Wall Street Journal that the country’s much-criticized special taxes levied on its energy, telecommunications, retail and banking businesses may remain in place for as long as a decade to help the government reduce its public debt.

Meanwhile his government is continuing to explore ways of extending more help to Hungarian households burdened by foreign currency debt, Mr. Orban said. He also said that conflicting factors could be involved in shaping the Hungarian forint’s exchange rate.

In a wide-ranging exclusive interview in his spacious office in parliament, Mr. Orban, now in his last year in office before facing parliamentary elections in 2014, defended the country’s new constitution against European Parliament criticism, rejecting the idea that mainstream European thinking should define what is modern or European.

The WSJ: With three years at the helm of the government and tackling the crisis, what’s your response to the critics of Hungary’s economic policy, who have often termed it as unorthodox?

Mr. Orban: When we started the new economic policy, the first doubt in the mind of the West was: Was it a vision-led policy or just decisions made so we could survive until the next morning. We had a clear-cut vision of how to get out of the crisis, how to make Hungary competitive. In 2002, we were in the vanguard of Central Europe. In 2010, we were the weakest. We are closer now to where we want to be. We will catch up with Central Europe again. That is important. The future of Europe is Central Europe. Without us, there would be no growth at all in the European Union. If we want to have growth in the future in the European economy, it will come from Central Europe. Now we are once again part of the powerhouse.

In 2010, there were a lot of bad trends. Debt was rising. Now we are one of the few countries where debt is falling. In terms of the budget deficit, we are now out of the EU’s excessive deficit procedure. Foreign trade is rocketing, so our external account is in surplus. That is very valuable in these times of crisis. In 2010, Hungary wasn’t able to stand on its own feet. It needed other people’s money. That damages national pride and self-esteem. Three years ago we were depending on money from the IMF and the EU. Now, we are able to finance ourselves from the market. Hungarians are buying bonds. Unemployment is falling and workforce participation is rising. We had 1.8 million taxpayers when I took office. Now we are close to 4 million. Income is rising, in real terms. Pensions are cautiously increasing, too.

We have economic growth again. When you say something is a success story, no one believes you, because that’s what the communists used to say. So we say we are doing better, we are improving, not that we are successful.

When you are in trouble, when your neighbors are also hit with crisis, just following standard, generalized economic policies doesn’t work. You need to take targeted action. People say such policies are unorthodox. If you have a more positive view, they are innovative. But they are targeted. At the start of this year, we started our Action Plan for Job Protection. It is targeted. Social taxation is reduced for firms employing certain types of people: Women reentering the workforce, unemployed youth, the long-term unemployed. To raise revenues we have used special taxes for banks and monopoly areas of the economy, like energy and telecoms.

Major companies want more generalized economic policies. During a crisis you can’t do that. They say it is unpredictable. But it’s a crisis economic policy.

The WSJ: There is also a lot of criticism of your party taking advantage of its supermajority in Parliament. Why do you think the two-third majority is important?

Mr. Orban: Psychology is also important. It matters whether people trust national institutions. In Hungary, trust in national institutions is growing. That’s especially important when trust in European institutions is decreasing everywhere. Without trust, it’s a leadership problem and, ultimately, a democracy problem. People criticize the government. But no one is saying Hungary lacks leadership. In crisis times, that is important. In the 2010 election, we won a two-thirds majority. This is the precondition for leadership in this crisis. The two-thirds majority was crucial and we used it well.

This year we got back some of the GDP growth we lost last year. Growth will come back and people will feel better. Politically speaking, if you look beyond the numbers, the impact of our economic policy has been clearly a strengthening of the middle class. If you don’t want an economic crisis to become a political crisis, you need to defend the middle class. Spending on culture, sport and science is higher than ever before in the past 20 years. And still we exited the excessive deficit procedure. We are living in a crisis and life is not easy. People are right to be discontented. Hungary, legitimately, has done something important in the last three years. There have been extraordinary efforts to get out of the crisis, by ordinary people, by academics, by the government. Politically speaking, our support has held up surprisingly well, considering the difficult times we’ve been through. We have a chance in the next elections.

I think leadership counts. The impression three years ago was that the leftist, liberal government fell apart because of a lack of leadership. People must feel leaders care about them and are focused on their problems. This government tries to emphasize that that is what we do. We’ve tried to help families with high foreign-currency debts, high living costs, high electricity and utility bills.

The WSJ: What are your government’s major achievements and how do you see your role in those?

Mr. Orban: We have a new constitution. It is the first democratic constitution for Hungary. Hungary was the last one in the region to adopt a democratic constitution. It says the economy is based on labor and freedom of entrepreneurship. It requires a balanced, transparent and sustainable budget and places limits on public debt. Not too many people talk about that. International criticism has focused on soft issues, such as the definition of family on human rights and the media. Social life is very difficult here. Unemployment insurance only lasts for three months. After that, nothing. Then public work. If you reject that, you get no social aid. If you have a school-aged child and he or she doesn’t go to school, then you don’t get child-support assistance. We are making an attempt to turn an entitlement-based society into a merit-based one. We are very close. That kind of transformation is very complicated. What remains to be seen is if by doing that, you can win an election.

People appreciate common sense. We can’t live in a country of 10 million people where only 1.8 million pay tax. Of course, people don’t want to pay taxes. But they think it is the job of the leader to be tough on these kinds of issues. When you have to save your country, to renew your country–that is when a job like this is appealing to someone like me. This is a real challenge, not just like reorganizing a bureaucracy. People like me, we like to do something significant, something extraordinary. History has provided me that chance. Actually, it provided it three times. I’ve always gotten historic challenges as a leader. When things are going well, I seem to lose the elections, because the people don’t need me anymore.

The WSJ: What leadership does the EU provide for the region in the current crisis?

Mr. Orban: You have to take into consideration the character of the EU. It was created to coordinate the activities of nation-states. It has a fine-tuned, sophisticated institutional architecture. That has a consequence for leadership. For the EU that means it has institutional leadership. When things are going well, institutions can satisfy people’s desire for leadership. But when you are in a crisis, you don’t trust institutions, you trust people. You need people to say we need to make risky decisions, we need to take action, follow me.

The EU cannot provide personal leadership. We need more leadership in Brussels. That’s the structural trap we are in. We need strong national leaders now. We need strong personal leaders. Then the people of the EU will feel like they have leaders.

The euro zone needs stronger institutions. Will that require changes to the treaty? Probably yes. Those of us not in the euro zone need to support the euro zone in doing what it needs to do. Without a common fiscal policy, there can’t be a common currency. When tough times come, they need it. That won’t be easy, especially for the southerners, who aren’t as closely attached to the German economy.

The WSJ: When do you think it would be appropriate for Hungary to join the euro zone? You recently said that when Hungary’s GDP per capita reaches 90% of the EU average, adding that that won’t likely to happen in the next 10 years.

Euro zone countries need a strong, centralized fiscal policy. For those outside the euro zone, there should be a broad room to maneuver to find the right economic policy mix. We should enjoy the flexibility and broader room for maneuver afforded by not being in the euro zone. We should exploit the advantages of not being in the euro zone. Now, the only rational approach is to pursue our own, targeted economic policy. The Hungarian constitutional architecture is very cautious, conservative and therefore reliable. The constitution says Hungary’s currency is the forint. To change that will require a two-third vote of Parliament. So, to join the euro will require a strong, unified majority. This guarantees that it will not be a divisive issue. Whether Hungary joins will depend a lot on how well the new, integrated euro zone functions.

The WSJ: What’s the message of the Tavares report about Hungary’s new constitution?

Generally speaking, what the European Parliament did is very dangerous. This is nothing but the hidden building process of a bureaucratic empire. The EU treaty spells out a very sensitive, balanced approach to federation and nation-states. This is a fragile balance. This balance is being modified, step-by-step without any discussion of what is changing. It is a creeping, stealthy shift that is going on. We have to defend the balance. We have to be aware that life in the EU political arena won’t be easy for us. On some basic principles, we think very differently. The question is, can we live together in the same political framework with people who have such different convictions?

The mainstream of European political thinking today is motivated by the notion of progress. They believe there is a target for development. We believe we are living as human beings created by God. We don’t think there is some target for European history. Mainstream European political thinking is that we should abandon our roots. Roots are considered the enemies of freedom. But without roots we are lost. It’s a question of individual liberty, Christian values, of nation and religious life. The mainstream says our approach is not a modern, European one. That is not a discussion. We are probably in a minority in the European arena at the moment. But the values and traditions we are defending are European ones. We are ready to discuss these points, but not in a way where the mainstream defines what is modern or European.

When I appeared in the European Parliament, I felt hatred. It’s not a rational argument they make. It was shocking, like an inquisition. What happened with the Tavares case is alien to the culture of the EU. How can the same group be the prosecutor and the judge? But Parliament is at the same time necessary. The question is how does a party-based institution fit into the European framework that is not party-based?

The WSJ: What’s the aim of the Hungarian government’s policy with opening up to the East? Should Hungary be drawing more on the Asian economic models and democracy?

The Asian model of democracy has no bearing for the Hungarian democracy because Christianity-based democracies are always different from democracies that are not Christianity-based.

Ideologically speaking, democracy as we know it is based on two cultural foundations: the first is that God created us in his own likeness and the second is that to destroy it is therefore a sin. Asians don’t have that but they have a different kind of foundation. It’s interesting and exciting how they do it but it cannot be a pattern for us. Therefore when we talk about opening up to the east, it basically means culture and the economy. We lost 15 years in cooperation with the East–the French, the Germans are all head of us in this respect so there’s nothing unique in this, we’d like to catch up with them.

Hungary has no raw materials and no major energy sources, we have some agricultural background. So what we produce here in Hungary is the result of our labor and minds, and then we have to sell it to the world. If we are not able to do that, if we are not innovative enough, if we are not modern and open enough, we can’t do that. So it’s a must for Hungary to be open. Otherwise we will never reach and maintain the level of living standards we are vying for.

The WSJ: How do you look as a principle at the role of the state as an actor in the economy?

Mr. Orban: When everything is going well, the role of the state in the economy should be limited. When we are in a crisis, it’s different. But even if everything is going well, there is some role for the state in relation to the natural monopolies—like the natural gas pipeline going to your home or the electricity wires. The state must either regulate them properly or keep the monopolies and operate them. The EU has tried to make those competitive but that’s basically impossible.

The WSJ: What’s the role of the state when the economy is in crisis?

Mr. Orban: To help the economy out of the crisis. The question how the state can do that. And that’s a political decision—what is your strategy. Our political strategy is very clear – we say when every one has a job, the crisis is over. So to have a job for everybody is not the result of a successful crisis management but the tool to get out of the crisis. So the role of the state during crisis times when the market cannot provide jobs for everybody is to find the proper instruments how to provide a job for everybody. If your budget is in good shape and you are not indebted too much, you can do what the U.S. did at the beginning of the ‘30s—building railways, etc. but when you don’t have that, you must be far more cautious. As our budget wasn’t in good shape in the past three years and we are still indebted, we have to find different ways and this is the public works system in Hungary. There are over 200,000 people in public jobs and by the end of this year when we reach the absolute limit, it could be close to 300,000, so I could tell Hungarians in November that everyone who wants to work there’s a possibility to work. Of course, it’s not a job of your dreams but you can work to maintain your existence. And when the economy is booming again that number of public jobs could be shrinking.

The WSJ: We’d need to clarify the forint strategy of the government. The foreign-currency loans are the biggest issue and if Hungary could get rid of this problem, could the forint be weakened to increase competitiveness?

Mr Orban: The issue of the value of the currency belong to the central bank. So I don’t know what will happen after we get rid of the foreign-currency loans, but that would take more than one year. Those loans are the most dreadful heritage of the previous Socialist governments, morally destroying. We have done several things to help the people with those loans, but we are constantly thinking how to help them further. This is still the number one challenge of Hungary and the Hungarian families.

The WSJ: If growth comes back, do you see the main pillars of the budget remaining the same or do you plan adjusting them?

Mr. Orban: The question is not the budget deficit but public debt. So the number one target in my mind is the debt. Budget is just a consequence. We have to push the debt level down to below 50% [of GDP]. That’s the target. Until that moment, we basically cannot change [the revenue structure of the budget]. When we have done so and there’s a guarantee that the budget deficit cannot lead to rising debt, everything could be renegotiated. Debt will remain the major challenge in the future so nations with a debt level of over 50% of GDP are in danger, those who are over 60% are in imminent danger and those with over 90% should pray.

The WSJ: Are you saying the various crisis taxes should stay in place until the debt level is down?

The targeted tax system–yes.

The WSJ: Over what time period could the debt be reduced to below 50% of GDP?

Mr. Orban: If the euro zone could do better, it could happen in 10 years’ time, if it could do extremely well, it could take six, or even five years. That’s the reason why it’s very important that we have a debt brake and a deficit brake in the constitution. Because when you have more money, it’s always a temptation to distribute it instead of paying the debt back. We must stick to using it to pay back the debt until it falls to 50% of GDP. That’s a reasonable and responsible policy.

The WSJ: Isn’t that also an argument for a strong forint? The debt level comes down if the forint is strong. That’s a counterargument to boosting exports with a weaker forint.

Mr. Orban: Exactly. Life is not easy in politics. But the answer is that the debt structure should be changed as well. More and more of the debt should be financed from local savings. The best is when local citizens finance the state. That’s very difficult because the current structure is very far from that so we have to involve foreign investors, but we are moving into that direction.

The WSJ: Critics of this development say the government is crowding out the bank sector, which could use these funds to lend for investment.

Mr. Orban: That’s a reasonable argument but the fact is that now the banks are full of money, so the problem is not that they don’t have liquidity but that for risk-aversion reasons they would not like to provide credit. So crowding out could happen later on but not now. There’s a debate whether banks are reluctant to lend because of risk considerations or there are no viable investment projects that they could fund. That’s why the pilot project of the national bank is important, it could be a decisive element of this discussion. We’ll have to wait for the evaluation of the central bank’s Funding for Growth program to see whether it works or not. In the last several years a company couldn’t get a loan for less than a 9-10% interest. In the Hungarian economy, there’s not any kind of legal activity that could finance a 9-10% interest. It’s a vicious circle that we need to break.

Comments (5 of 63)

@Attila – bypass the “Jobbik” crap: In other words: This BS posted by that "Jobbik droid" is a "Hungaricum". Home-grown madness. Original magyar komment. This is part of Hungary under Orban today.

8:38 pm July 29, 2013

plebsz wrote:

@Attila - bypass the "Jobbik" crap: "Astroturfing" or not, I've heard this kind of senseless talk live from what seemed to be real people. Thanks for the clarification, though.

As for "Fidesz people" not being the same as "Jobbik people": I have my strong doubts. This is a rather selective distinction, i.e. it all depends on what actually is at stake. As an entity, Fidesz seems to want to heavily draw on Jobbik's fans, or at least to keep them happy (just in case). Theirs is not a "formal" relationship, but one based on constant flirting....

And I sure am not the one lumping them together. Wish I was. I would "unlump" them in no time. So let's not blame this on me.

5:59 pm July 27, 2013

Attila - bypass the "Jobbik" crap wrote:

@plebsz - First of all Fidesz and pro-Fidesz people are not equivalent to Jobbik or pro-Jobbik people. You are just using a weasel tactic to lump these together.

Second, if you cared to look back at the discussions on previous articles, you can see the pattern that these "Jobbik people" indeed try to destroy the discussions. They try to paint an as primitive as possible picture of Hungarians...This has led several people to the same conclusion, that in fact these are not Hungarians. The process of "digital astroturfing" or of the fake and directed grassroots movements by large corporations, and by governments (China, Russia) has been documented many times. It looks as if this "Jobbik" thingy of posting uncivilized, primitive comments on every Hungarian topic is an effort of such astroturfing campaign to discredit Hungarians.

I urge every Hungarian to keep this in mind, and simply bypass these Jobbik posts, and focus on the discussions among real people.

8:10 pm July 26, 2013

euan wrote:

@Hungary needs the J0BBIK Party !
I love your posts, such comedy....

3:32 pm July 26, 2013

plebsz wrote:

@Attila: This is "normal practice" on Hungarian-language discussion forums. Whenever proper arguments are called for or lowly personal attacks prove useless, some loony pro-FIDESZ or pro-JOBBIK troll turns up to inject this kind of utter madness into the discussion. Those who only read the latest comment - this time by that humanoid - turn away, and that seals the chat. Nasty method, but it seems to work. For now at least...

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